Is Crypto Entering a Bear Market or Just a Bear Trap?

The crypto market has erased nearly all of its gains from early September, reversing its upward trajectory since late last week. 

This downturn has left analysts split. Some argue it could mark the onset of a bear market, while others see it as a short-lived bear trap that could quickly give way to another rebound.

Is a Crypto Bear Market Starting?

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Data from BeInCrypto Markets showed that the total cryptocurrency market capitalization declined by 6.6% over the past seven days. The majority of the coins are in the red, following the Federal Reserve’s interest rate cut last week.

Among the top 10 coins, Solana (SOL) suffered the steepest drop, plunging 19.5%. Bitcoin (BTC) and Ethereum (ETH) also fell significantly, dropping below key support levels of $110,000 and $4,000, respectively. 

The sharp sell-off has drawn commentary from long-time crypto critic Peter Schiff, who highlighted silver’s rally amid Bitcoin’s decline. He noted that while BTC dipped, silver jumped nearly 3%.

“I always thought it would be gold that pricked the Bitcoin bubble. It looks like it may be silver,” Schiff said.

Furthermore, the economist pointed to Ethereum’s dip below $4,000, arguing that it now places ETH in an official bear market. He predicted that Bitcoin could soon follow the same path.

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“We are not about to enter another crypto winter, as that implies another spring will soon follow. Get ready for a crypto ice age. Got gold?” he added.

While Schiff’s outlook is decidedly negative, other analysts have also flagged concerning signals. An analyst observed that, historically, major downturns often coincide with the Federal Reserve’s rate-cutting cycles. 

“Over the last 3 decades, every big bad bear market started around the time FED started to cut rates,” he said.

From a technical perspective, another analyst, PlanC, drew attention to Bitcoin’s Short-Term Holder (STH) cost basis, currently $111,500. The STH cost basis is an on-chain metric that shows the average price at which recent Bitcoin buyers purchased their coins. This metric is widely viewed as a dividing line between bullish and bearish conditions.

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“During a bull market, the price should remain above the Short-Term Holder Cost Basis for the majority of the time, with only brief dips below it followed by quick recoveries. If the STH Cost Basis acts as consistent resistance—where the price drops below it and gets repeatedly rejected—that’s a hallmark of a bear market,” the analyst stated.

At present, BTC is already trading under this benchmark. If it fails to recover, it could signal a bear market.

The Bear Trap Perspective

In contrast, other experts maintain that the downturn is a bear trap. It is a temporary downturn that looks like the start of a deeper decline, but instead reverses higher.

An analyst emphasized that the market is still mid-cycle rather than nearing its end. This leaves room for a final phase of euphoria and potentially new all-time highs. 

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According to him, several signals often indicate when a cycle top is approaching. These include the MVRV-Z score moving into the 3–4 zone, a sharp drop in exchange liquidity as coins shift to cold wallets, funding rates turning strongly positive, and the Fear & Greed Index reaching ‘Extreme Greed.’

“What makes these cycles so similar? They all repeat the same structure: 9-12 month growth period, mid-cycle correction that looks like the trend is over, final pump leading to mass euphoria,” the post read.

Joe Consorti noted that Bitcoin is absorbing supply at a key psychological level. He suggested that once selling from long-term holders eases and institutional demand persists, the setup increases the likelihood of a strong breakout heading into Q4.

“With long-term holder distribution abating, persistent institutional demand, bullish seasonality, and a friendly Fed all aligned, the odds favor another explosive leg higher in Q4,” Consorti forecasted. 

With these signals, the coming time will tell whether the current downturn will deepen or set the stage for another rally.